What Is Tesla Motors Really Worth?

Tesla Motors (NASDAQ: TSLA) has had a meteoric rise in 2013, driven by a surprise profit in the first quarter. This rise has brought the company's market cap to $11.8 billion; lofty considering the fact Tesla only makes about 20,000 vehicles per year.

So, has Tesla driven too far too fast or is there still value in the stock?

What is Tesla worth? To get a ballpark idea of what Tesla could be worth we need to look at production plans and eventual profits. It plans to sell 20,000 Model S sedans, and when the Model X begins production next year there may be another 15,000 vehicles produced. If we assume the average Model S sells for about $75,000, and that the Model X will sell for about the same, and that Tesla can generate the 25% gross margin Elon Musk predicts, then the company could generate a $656 million profit.

Production

Profit per Unit

Total Potential Profit

Model S

20,000

$18,750

$375 million

Model X

15,000

$18,750

$281 million

Total

$656 million

That's probably a generous estimate but it gives us a ballpark of how much money the company could make. Of course, it could add production beyond that in coming years and it will get revenue from partnerships with Toyota (NYSE: TM) and Mercedes-Benz, but this is what we know of so far.

Many unknowns for Tesla The challenge for investors is trying to predict how many vehicles Tesla will make in the long term, how much profit it can command, and how its competition will react. Tesla is making a decent number of vehicles, but Ford (NYSE: F) and General Motors (NYSE: GM) will react to its success and have much larger balance sheets and networks. Tesla could possibly make 35,000 vehicles per year by 2015, but just last month Ford and GM sold 246,585 and 252,894 vehicles in the U.S. alone. Despite the fact that they make 10 times more vehicles in one month than what Tesla makes in a year, Tesla has a quarter the market cap of GM and under one-sixth the value of Ford.

Is Tesla overvalued? Tesla could generate $656 million in profit based on the assumptions I've made above. But even if it does, the company would only generate net income of about $400 million after research and development, operating costs, and taxes. So, the stock would trade at 30 times earnings right now. I think a fair valuation given the long lead time in expanding production would be half that multiple, or a stock price of around $50. Unless the company plans to grow capacity by more than planned there's just not a lot of value in the stock right now.

Tesla's plan to disrupt the global auto business has yielded spectacular results. But giant competitors are already moving to disrupt Tesla. Will the company be able to fend them off? The Motley Fool answers this question and more in our most in-depth Tesla research available. Get instant access by clicking here now.

Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends Ford, General Motors, and Tesla Motors. The Motley Fool owns shares of Ford and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Your valuation method is one of several I've seen and all indicate Tesla at $100 per share is over valued. Current price seems to be a good example of current shareholders getting to enthusiastic about a product that they are convinced is "one of a kind". With over capacity in auto manufacturing worldwide, no way the Tesla vehicle will be exempt from direct competition if it happens to succeed. My take is that at $100, Tesla is very high risk and very little reward.

Travis, according to Morgan Stanley analyst Adam Jonas: "Tesla made $40.5 million in selling ZEV (Zero Emissions Vehicles) and GHG (Green House Gas) credits to other OEMs in 2012, or $13,900 per completed vehicle." This is a non-traditional income stream, but Tesla certainly is a non-traditional company. Any thoughts on this?

On the other hand, Tesla is on the hook for their 8yr/100,000 mile battery warranties, a non-traditional liability. Hopefully they will have better luck with battery technology than Boeing has had with the Dreamliner. Risky business.

Nothing has changed about electric since the Model T Ford era. It's the best method of powering transportation, except for the lack of electricity storage or generation. Very little advancement in that, since the Model T era. We need a "Back to the Future" invention. Where you drop banana peels and beer cans into a hopper, and out comes a few mega watts of power. Till then it's all a pipe dream. Happy investing!

Garbage in and garbage out. Battery technology will improve and so will the costs, eventually making the car so compelling that nothing will hold it back, given the superior perforce of instant torque and low center of gravity.

Gas and maintenance savings are an extra benefit, the automobile of today is on death watch.

@drax7: That's not a case for Tesla, it's a case for EVs. If and when the tech improves to that point, the global automakers will be all over this market. What happens to Tesla then?

Trav: I think you're underestimating Tesla's likely spending here. Just for future-model development, think $750 million (and 2.5 years) to develop a new vehicle and tool up for its production. Maybe more for a from-scratch design like the entry-level model or the pickup. Add a billion if and when they need a second factory. Capex is enormous in this business.

Also, what happens to their margins when a kick-butt Audi EV appears for $10k less?